Concept explainers
Chuck Moore supervises two consulting jobs for the firm of Price and Waters, LLP, which is a consulting firm that helps organizations become more efficient. One of the consulting jobs is for the U.S. Department of Defense and the other is for General Motors, Inc. Chuck received the monthly cost reports about three weeks after month-end. The General Motors job contained bad news. After getting up his nerve, Chuck called his boss the following week to pass on the bad news.
“The General Motors job is only half done, but we have already spent all of the $1 million that we expected to spend on that job,” he said. “However, we have spent only $500,000 of the $800,000 that we expected to spend on the U.S. Department of Defense job, even though we are 90 percent done with the work.”
His boss told Chuck, “Assign the rest of the costs needed to complete the General Motors job to your U.S. Department of Defense job. We’re under budget on that job and we get reimbursed for costs on government jobs.”
Required
- a. What should Chuck do?
- b. Does it matter that Chuck’s consulting firm is reimbursed for costs on the government jobs? Explain.
Want to see the full answer?
Check out a sample textbook solutionChapter 7 Solutions
Gen Combo Fundamentals Of Cost Accounting; Connect Access Card
- John Biggs and Patty Jorgenson are both cost accounting managers for a manufacturing division. During lunch yesterday, Patty told John that she was planning on quitting her job in three months because she had accepted a position as controller of a small company in a neighboring state. The starting date was timed to coincide with the retirement of the current controller. Patty was excited because it allowed her to live near her family. Today, the divisional controller took John to lunch and informed him that he was taking a position at headquarters and that he had recommended that Patty be promoted to his position. He indicated to John that it was a close call between him and Patty and that he wanted to let John know personally about the decision before it was announced officially. Required: What should John do? Describe how you would deal with his ethical dilemma (considering the IMA code of ethics in your response).arrow_forwardTypes of Responsibility Centers Consider each of the following independent scenarios: a. Terrin Belson, plant manager for the laser printer factory of Compugear Inc., brushed his hair back and sighed. December had been a bad month. Two machines had broken down, and some factory production workers (all on salary) were idled for part of the month. Materials prices increased, and insurance premiums on the factory increased. No way out of it; costs were going up. He hoped that the marketing vice president would be able to push through some price increases, but that really wasnt his department. b. Joanna Pauly was delighted to see that her ROI figures had increased for the third straight year. She was sure that her campaign to lower costs and use machinery more efficiently (enabling her factories to sell several older machines) was the reason why. Joanna planned to take full credit for the improvements at her semiannual performance review. c. Gil Rodriguez, sales manager for ComputerWorks, was not pleased with a memo from headquarters detailing the recent cost increases for the laser printer line. Headquarters suggested raising prices. Great, thought Gil, an increase in price will kill sales and revenue will go down. Why cant the plant shape up and cut costs like every other company in America is doing? Why turn this into my problem? d. Susan Whitehorse looked at the quarterly profit and loss statement with disgust. Revenue was down, and cost was upwhat a combination! Then she had an idea. If she cut back on maintenance of equipment and let a product engineer go, expenses would decreaseperhaps enough to reverse the trend in income. e. Shonna Lowry had just been hired to improve the fortunes of the Southern Division of ABC Inc. She met with top staff and hammered out a 3-year plan to improve the situation. A centerpiece of the plan is the retiring of obsolete equipment and the purchasing of state-of-the-art, computer-assisted machinery. The new machinery would take time for the workers to learn to use, but once that was done, waste would be virtually eliminated. Required: For each of the above independent scenarios, indicate the type of responsibility center involved (cost, revenue, profit, or investment).arrow_forwardNutts management is very concerned about the cost of overhead on its jobs. When jobs are complete, overhead costs should be between 15% and 20% of total costs. For example, the labor cost on Job 8958 is 25% of total costs, higher than the norm. Open Job 8961 and click the Chart sheet tab. A pie chart appears showing the cost components on that job. Record the labor cost percentage in the space provided. Repeat this for each of the jobs worked on in August. Did Nutt maintain good cost control on all its jobs? Explain. Worksheet. During September, Job 8963 required two additional material requisitions to complete the job. Open JOB8963 and modify the job cost sheet to include an area for four direct material requisition entries instead of three. Then enter the following two materials requisitions onto the worksheet: Preview the printout to make sure it will print neatly on one page, and then print the worksheet. Save the completed worksheet as JOBT. Chart. Open JOB8964 and click the Chart sheet tab. Prepare a bar chart for JOB8964 showing the amount of material, labor, and overhead required to complete the job. Use the Chart Data Table found in rows 4246 as a basis for preparing the chart. Enter your name somewhere on the chart. Save the file again as J0B8964. Print the chart.arrow_forward
- Darnell Poston, owner of Poston Manufacturing, Inc., wants to determine the cost behavior of labor and overhead. Darnell pays his workers a salary; during busy times, everyone works to get the orders out. Temps (temporary workers hired through an agency) may be hired to pack and prepare completed orders for shipment. During slower times, Darnell catches up on bookkeeping and administrative tasks while the salaried workers do preventive maintenance, clean the lines and building, etc. Temps are not hired during slow times. Darnell found that workers salaries, temp agency payments, rentals, utilities, and plant and equipment depreciation are the largest dollar accounts. He believes that workers salaries and plant and equipment depreciation are fixed, temp agency payments are associated with the number of orders (since temp workers are used to pack and prepare completed orders for shipment), and electricity is associated with the number of machine hours. When the number of different parts stored by Poston exceeds the space in the materials storeroom, Darnell rents nearby warehouse space. He can rent as much or as little space as he wants on a month-to-month basis. Therefore, he believes warehouse rental payments are variable with the number of parts purchased and stored. The account balances for the past six months as well as the six-month total are as follows: Information on number of machine hours, orders, and parts for the six-month period follows: Required: 1. Calculate the monthly average account balance for each account. Calculate the average monthly amount for each of the three drivers. 2. Calculate fixed monthly cost and the variable rates for temp agency payments, warehouse rent, and electricity. Express the results in the form of an equation for total cost. 3. In July, Darnell predicts there will be 420 orders, 250 parts, and 5,900 machine hours. What is the total labor and overhead cost for July? 4. What if Darnell buys a new machine in July for 24,000? The machine is expected to last 10 years and will have no salvage value at the end of that time. What part of the cost equation will be affected? How? What is the new expected cost in July?arrow_forwardOverhead Assignment: Actual and Normal Activity Compared Reynolds Printing Company specializes in wedding announcements. Reynolds uses an actual job-order costing system. An actual overhead rate is calculated at the end of each month using actual direct labor hours and overhead for the month. Once the actual cost of a job is determined, the customer is billed at actual cost plus 50%. During April, Mrs. Lucky, a good friend of owner Jane Reynolds, ordered three sets of wedding announcements to be delivered May 10, June 10, and July 10, respectively. Reynolds scheduled production for each order on May 7, June 7, and July 7, respectively. The orders were assigned job numbers 115, 116, and 117, respectively. Reynolds assured Mrs. Lucky that she would attend each of her daughters weddings. Out of sympathy and friendship, she also offered a lower price. Instead of cost plus 50%, she gave her a special price of cost plus 25%. Additionally, she agreed to wait until the final wedding to bill for the three jobs. On August 15, Reynolds asked her accountant to bring her the completed job-order cost sheets for Jobs 115, 116, and 117. She also gave instructions to lower the price as had been agreed upon. The cost sheets revealed the following information: Reynolds could not understand why the overhead costs assigned to Jobs 116 and 117 were so much higher than those for Job 115. She asked for an overhead cost summary sheet for the months of May, June, and July, which showed that actual overhead costs were 20,000 each month. She also discovered that direct labor hours worked on all jobs were 500 hours in May and 250 hours each in June and July. Required: 1. How do you think Mrs. Lucky will feel when she receives the bill for the three sets of wedding announcements? 2. Explain how the overhead costs were assigned to each job. 3. Assume that Reynoldss average activity is 500 hours per month and that the company usually experiences overhead costs of 240,000 each year. Can you recommend a better way to assign overhead costs to jobs? Recompute the cost of each job and its price, given your method of overhead cost assignment. Which method do you think is best? Why?arrow_forwardCommunications Jamarcus Bradshaw, plant manager of Georgia Paper Companys papermaking mill, was looking over the cost of production reports for July and August for the Papermaking Department. The reports revealed the following: Jamarcus was concerned about the increased cost per ton from the output of the department. As a result, he asked the plant controller to perform a study to help explain these results. The controller, Leann Brunswick, began the analysis by performing some interviews of key plant personnel in order to understand what the problem might be. Excerpts from an interview with Len Tyson, a paper machine operator, follow: Len: We have two papermaking machines in the department. I have no data, but I think paper machine No. 1 is applying too much pulp and, thus, is wasting both conversion and materials resources. We haven't had repairs on paper machine No. 1 in a while. Maybe this is the problem. Leann: How does too much pulp result in wasted resources? Len: Well, you see, if too much pulp is applied, then we will waste pulp material. The customer will not pay for the extra product; we just use more material to make the product. Also, when there is too much pulp, the machine must be slowed down in order to complete the drying process. This results in additional conversion costs. Leann: Do you have any other suspicions? Len: Well, as you know, we have two productsgreen paper and yellow paper. They are identical except for the color. The color is added to the papermaking process in the paper machine. I think that during August these two color papers have been behaving very differently. I don't have any data, but it just seems as though the amount of waste associated with the green paper has increased. Leann: Why is this? Len: I understand that there has been a change in specifications for the green paper, starting near the beginning of August. This change could be causing the machines to run poorly when making green paper. If this is the case, the cost per ton would increase for green paper. Leann also asked for a database printout providing greater detail on Augusts operating results. September 9 Requested by: Leann Brunswick Papermaking DepartmentAugust detail Prior to preparing a report, Leann resigned from Georgia Paper Company to start her own business. You have been asked to take the data that Leann collected, and write a memo to Jamarcus Bradshaw with a recommendation to management. Your memo should include analysis of the August data to determine whether the paper machine or the paper color explains the increase in the unit cost from July. Include any supporting schedules that are appropriate. Round any calculations to the nearest cent.arrow_forward
- Huron Manufacturing Co. uses a job order cost system to cost its products. It recently signed a new contract with the union that calls for time-and-a-half for all work over 40 hours a week and double-time for Saturday and Sunday. Also, a bonus of 1% of the employees earnings for the year is to be paid to the employees at the end of the fiscal year. The controller, the plant manager, and the sales manager disagree as to how the overtime pay and the bonus should be allocated. An examination of the first months payroll under the new union contract provisions shows the following: Analysis of the supporting payroll documents revealed the following: a. More production was scheduled each day than could be handled in a regular workday, resulting in the need for overtime. b. The Saturday and Sunday hours resulted from rush orders with special contract arrangements with the customers. The controller believes that the overtime premiums and the bonus should be charged to factory overhead and spread over all production of the accounting period, regardless of when the jobs were completed. The plant manager favors charging the overtime premiums directly to the jobs worked on during overtime hours and the bonus to administrative expense. The sales manager states that the overtime premiums and bonus are not factory costs chargeable to regular production but are costs created from administrative policies and, therefore, should be charged only to administrative expense. Required: 1. Evaluate each positionthe controllers, the plant managers, and the sales managers. If you disagree with all of the positions taken, present your view of the appropriate allocation. 2. Prepare the journal entries to illustrate the position you support, including the accrual for the bonus.arrow_forwardCodeHead Software Inc. does software development. One important activity in software development is writing software code. The manager of the WordPro Development Team determined that the average software programmer could write 25 lines of code in an hour. The plan for the first week in May called for 4,650 lines of code to be written on the WordPro product. The WordPro Team has five programmers. Each programmer is hired from an employment firm that requires temporary employees to be hired for a minimum of a 40-hour week. Programmers are paid 32.00 per hour. The manager offered a bonus if the team could generate more lines for the week, without overtime. Due to a project emergency, the programmers wrote more code in the first week of May than planned. The actual amount of code written in the first week of May was 5,650 lines, without overtime. As a result, the bonus caused the average programmers hourly rate to increase to 40.00 per hour during the first week in May. Instructions 1. If the team generated 4,650 lines of code according to the original plan, what would have been the labor time variance? 2. What was the actual labor time variance as a result of generating 5,650 lines of code? 3. What was the labor rate variance as a result of the bonus? 4. The manager is trying to determine if a better decision would have been to hire a temporary programmer to meet the higher programming demand in the first week of May, rather than paying out the bonus. If another employee was hired from the employment firm, what would have been the labor time variance in the first week? 5. Which decision is better, paying the bonus or hiring another programmer?arrow_forwardEntry for factory labor costs The weekly time tickets indicate the following distribution of labor hours for three direct labor employees: The direct labor rate earned per hour by the three employees is as follows: The process improvement category includes training, quality improvement, and other indirect tasks. A. Journalize the entry to record the factory labor costs for the week. B. Assume that Jobs 301 and 302 were completed but not sold during the week and that Job 303 remained incomplete at the end of the week. How would the direct labor costs for all three jobs be reflected on the financial statements at the end of the week?arrow_forward
- Indicate whether the statement describes reporting by the financial accounting function or the managerial accounting function of an organization. The users of the report are managers who need a daily summary of work done each shift. The report is a job cost sheet for jobs completed in a 24-hour period. The annual report is released each year on the companys website. The report is audited by the companys certified public accountant firm. The report is prepared every day because the customer service manager needs information about inventory ready to be shipped to customers.arrow_forwardEthics and the Manager Terri Ronsin had recently been transferred to the Home Security Systems Division of National Home Products. Shortly after taking over her new position as divisional controller, she was asked to develop the division’s predetermined overhead rate for the upcoming year. The accuracy of the rate is important because it is used throughout the year and any underapplied or overapplied overhead is closed out to Cost of Goods Sold at the end of the year. National Home Products uses direct labor-hours in all of its divisions as the allocation base for manufacturing overhead. To compute the predetermined overhead rate, Terri divided her estimate of the total manufacturing overhead for the coming year by the production manager’s estimate of the total direct labor-hours for the coming year. She took her computations to the division’s general manager for approval but was quite surprised when he suggested a modification in the allocation base. Her conversation with the general…arrow_forwardUsing job order costing in a service company Chance Realtors, a real estate consulting firm, specializes in advising companies on potential new plant sites. The company uses a job order costing system with a predetermined overhead allocation rate, computed as a percentage of direct labor costs. At the beginning of 2018, managing partner Andrew Chance prepared the following budget for the year: Maynard Manufacturing, Inc. is inviting several consultants to bid for work. Andrew Chance wants to submit a bid. He estimates that this job will require about 180 direct labor hours. Requirements Compute Chance Realtors’ (a) hourly direct labor cost rate and predetermined overhead allocation rate. Compute the predicted cost of the Maynard Manufacturing job. If Chance wants to earn a profit that equals 25% of the job’s cost, how much should he bid for the Maynard Manufacturing job?arrow_forward
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax CollegeManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubExcel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning
- Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Principles of Cost AccountingAccountingISBN:9781305087408Author:Edward J. Vanderbeck, Maria R. MitchellPublisher:Cengage LearningManagerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning